THE WORST BANKER IN HISTORY: HOW JOHN BLUNT RUINED MILLIONS

He was also a gambler whose only desire in life was to get as rich as
possible.

Yet John Blunt had two qualities in his favour: he was self-confident
and charismatic - a man who quickly gained the ear of the political elite.

He charmed politicians and then exploited them. In so doing, he would
instigate one of the greatest financial catastrophes in history.

The countdown to disaster began in January, 1720, when Blunt developed a
scheme to eradicate Britain’s crippling national debt.

The South Sea Bubble: an 18th century cartoon

This debt stood at £31million - a staggering sum - and the government
was struggling to pay the £1.5million annual interest payments.

Blunt decided to use the South Sea Company, of which he was director, to
promote his revolutionary scheme.

You get one, I get three

He was aided by the fact that two of the key figures in the government -
Earl Sunderland and Earl Stanhope - knew nothing about finance.

They had deferred financial policy to John Aislabie, the inept
Chancellor of the Exchequer. It was to Aislabie that Blunt now presented his
grand idea.

It appeared blissfully simple. He offered to take over Britain’s entire
national debt - and there was only one condition attached. For every £100 of
debt he assumed, Blunt demanded the right to issue £100 of new stock for the
South Sea Company.

A big gamble: Hogarth's vision of the bubble

This made no sense to Aislabie. He couldn’t understand how anyone was
going to make any money out of such a transaction.

The answer was a neat little scam - one that depended on Blunt being
able to artificially raise the market value of South Sea shares.

It worked like this: if an individual held £1,200 of bad Government
securities - and wished to convert them into South Sea stock - the company
would be allowed to issue 12 new shares at £100 each.

But if the market value of each share could be manipulated upwards to,
say, £300, then the company would only have to give the individual four shares,
since these would equal £1,200.

Aislabie: a brilliant idea

It would continue to hold the eight remaining shares, which it could
then sell at £300 each, netting the tidy sum of £2,400. In one simple
transaction, Blunt would make an enormous sum of money. And he promised to make money for the country as well.

Chancellor Aislabie was impressed by the scheme and presented it to
Members of Parliament. They were no less impressed. Blunt already had a track
record at manipulating the markets: no one doubted he’d be able to artificially
increase the value of the South Sea Company shares.

After a long debate, it was decided to give him the green light.
Britain’s economy was being placed in the hands of one man - and a highly dubious
individual at that.

Everyone expected the national debt soon to be a thing of the past. But
there was one serious drawback to Blunt’s scheme: it was little more than an
empty gamble whose success was dependent on his ability to keen the price of
stock artificially high.

Even the king bought shares

Blunt bribed ministers in order to set the ball rolling and people soon
began to invest huge sums of money in the newly issued shares.

The king was no exception: he bought heavily and made £86,000 profit on
his investment. He promptly knighted this banking genius.

‘The eyes of the world were turned from the chief ministers of state to
this great oracle,’ wrote Aislabie.

The newly knighted Blunt had proved true to his word: now, he found fame
and fortune in equal measure.

The speculating frenzy lasted for eight months and involved much of the
nation: the value of shares exceeded all expectations, rising to £1,000 in the
summer of 1720.

He ruined the nation - but not himself

And then - dramatically - the bubble burst. The share value crashed as
people realized the hollowness of Blunt’s promises. Overnight, thousands of
families lost their lifetime’s savings. Many were left bankrupt.

‘They have lived their dream,’ wrote Alexander Pope, ‘and on awakening
found nothing in their hands.’

John Blunt ran away from the crisis he’d caused. He hid in Kent until he
was discovered and ordered back to London. He was stripped of his remaining
fortune and left the capital in disgrace.

Yet he had the last laugh. He was given a large allowance - and an even
larger house - by his son, who’d made a fortune out of the artificially created
boom.

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